From Barron’s, January 15, 2024 (Part 1, Market Week+)
Jan 13, 2024 12:51:07 GMT
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From Barron’s, January 15, 2024 (Part 1, Market Week+)
Pg 34, TRADER. On the expectations of RATE cuts, the stock market is near its highs. The CPI was a bit stronger, but the wholesale PPI (< CPI) was a bit weaker. The 10-yr Treasury yield fell. But inflation remains high. Big banks started the Q4 EARNINGS SEASON with poor reports; Q4 earnings overall should be better, but earnings expectations for 2024 may be too high.
The defensive HEALTHCARE sector is attractive with a weakening economy. The healthcare industry will benefit from surging numbers for Medicare Advantage plans. ETF is XLV (equal-weight ETF is RSPH).
FedEx (FDX; fwd P/E 12) should have a better year in 2024. It will remain profitable during this rough patch and revenues will rebound in the following years.
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
FOMC 1/31/24+ hold (cycle peak 5.25-5.50%)
FOMC 3/20/24+ cut
FOMC 5/1/24+ cut
FOMC 6/12/24+ cut
FOMC 7/31/24+ cut
(Expectations of cuts at every FOMC meeting in 2024 after January FOMC is just unrealistic) (Probabilities for some rate-ranges aren’t high, so there can be some unexpected moves.)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +0.34%, SP500 +1.84%, Nasdaq Comp +3.09%, R2000 -0.01%. DJ Transports -0.25%; DJ Utilities -1.47%. (Rotating spot tech XLK +4.41%) US$ index (spot) FLAT (remains too strong over 100), oil/WTI futures -1.53%, gold futures +0.21%.
52-Week (index changes only), DJIA +9.59%, SP500 +19.62%, Nasdaq Comp +35.14%. (Rotating spot tech XLK +47.32%) (SWITCHED to 52-week until YTD becomes meaningful)
SENTIMENTS
(ALL sentiments remain GOOD)
NYSE cumulative (5-day) A/D LINE rose; ratio of winners:losers 1+:1.
FUND INFLOWS +/OUTFLOWS - (4-weekMA). Stocks -, taxable bonds +, munis -, money-market funds +.
AAII Bull-Bear Spread +24.4% (high). (Thursday-Wednesday)
ybbpersonalfinance.proboards.com/thread/141/aaii-sentiment-survey-weekly?page=12&scrollTo=1285
%Above 50-dMA for NYSE-listed stocks 74.98% (still overbought; topped in mid-December); (StockCharts $NYA50R for NYSE; $SPXA50R for the SP500 in the bottom panel),
stockcharts.com/h-sc/ui?s=%24NYA50R&p=D&b=5&g=0&id=p91704957718 .
Delta MSI 87.3% (overbought); a proprietary index for %Above 75-dMA for selected 1,800 stocks that is published midweek but is updated by Barron’s only on late-Fridays (so, it typically LAGS). The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
(Common Scale: oversold < 30, negative < 50, positive > 50, overbought > 70; note that Delta MSI itself uses all in/out using 50% neutral value, but the same graduated scale is used here for both sources of %Above.)
Pg 37, INTERNATIONAL TRADER. ARGENTINE Prez MILEI is using chainsaw on its economy. He has joined hands with former Prez MACRI to get near-majority in Congress. Argentine bonds trade in 30s; inflation is 100%+. He has eliminated most price controls, is proposing raising taxes and cutting costs. He has offered swaps to international bond holders for local-currency bonds. Labor has called a general strike foe January 24.
Pg 38, OPTIONS. Eli Lilly/LLY may be the next Apple/AAPL; leaps are recommended.
(SP500 VIX 12.70 (low), Nasdaq 100 VXN 16.54 (low), options SKEW 143.81 (high), bond MOVE 106.51 (Yahoo Finance data).
(Low VIX, high SKEW combo is a sign of nervous bulls)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 51: A flat week in EUROPE (Greece +2.80%, Netherlands +1.18%, Norway -1.39%) and a good week in ASIA (Japan +4.39% (earthquake stimulus?), S Korea -2.33%).
TREASURY* 3-mo yield 5.45%, 1-yr 4.65%, 2-yr 4.14%, 5-yr 3.84%, 10-yr 3.96%, 30-yr 4.20%;
REAL yields 5-yr 1.62%, 10-yr 1.69%, 30-yr 1.95%;
FRNs Index** 5.305% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR was FLAT, ^DXY 102.44 (pg 58). GOLD was also FLAT at 2,058 (Handy & Harman spot, Thursday; pg 48); the gold-miners rose. (^XAU was at 120.64, +0.28% for the week)
Top FDIC insured savings deposit rates*** (This feature has been discontinued but see the link below)
US SAVINGS I-Bonds**, NEW rate from November 1, 2023, is 5.27%; the fixed rate is +1.30%, the semiannual inflation is +1.97%.
(NOTE – The Social Security COLA for 2024, based on the Q3 average of CPI-W, is +3.2%)
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS)
www.treasurydirect.gov/auctions/announcements-data-results/frn-daily/
www.treasurydirect.gov/marketable-securities/
***For local rates www.depositaccounts.com/banks/rates-map/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 16, COVER STORY, “2024 Barron’s ROUNDTABLE”. It’s hard to summarize with attributions, so only the topics discussed are highlighted. A full day of meeting was held on January 8 in the NYC & 11 Panelists’ & some of their recommendations follow (more recommendations will be in Parts 2 & 3 of the Roundtable).
2024 will be a disappointing year for STOCKS; valuations are rich, and leadership is very narrow (fwd P/E of Magnificent 7 is 1.7x that for SP500, for the remaining 493, 0.9x; large-cap fwd P/E 26.1, small-cap value fwd P/E 16.3). The ranks of value managers have thinned. There are values in healthcare, utilities, waste management, energy, some large-cap techs, HY, leveraged loans. Froth in small-caps is gone; 40% of small-caps are unprofitable, and if that is accounted for, R2000 fwd P/E is 26.8 (expensive), not 17. The regional banking crisis hurt R2000 as it has 20% in bank stocks; yet the HTM & AFS portfolio loss issues remain. Bottom-up earnings estimates for SP500 are too high and will come down. The FED will start cutting rates at some point, but real rates will be positive. Higher rates have led to more capital discipline. Money supply is shrinking, M1 -9.6% yoy, M2 -3%; QT is shrinking the Fed balance sheet. FISCAL policy is loose, and this is an election year; budget issues remain unresolved and there may be Government shutdown in January/February. There aren’t many discretionary items in the budget. The US deficit (6% of GDP) and debt (123% of GDP) are high. Many tax cuts will expire in 2025 (unless Congress acts). The US monetary and fiscal policies are working in opposite.
GROWTH will slow. Recession will be avoided but some industries have had rolling recessions (housing, transportation, shipping). The US and China account for 40% of the world GDP and both will be slowing down. GLOBALIZATION is over and that will increase inefficiencies and costs; there will be more tariffs. FOREIGN exposure will remain a drag (Europe, China, EMs); but there are EMs with good prospects (Indonesia, Malaysia, India, Brazil, Mexico). Privatization is a big theme in many EMs; EMs ex-China are doing fine. Euro-zone manufacturing is now near the GFC lows; Europe has overregulation. Multinationals are facing tough competition from local EM companies. The DOLLAR should remain strong. The US reshoring and global energy transitions will be important but expensive. Fossil fuels will remain on the scene for years; the US SPR is at low levels for any energy shocks. Natural gas is very expensive outside of the US. The EMs have low labor costs, but new technologies will substitute some labor. The ESG bubble has burst. Market DRIVERS will be AI (widespread use, productivity boost, long-term negative for labor), cloud computing, semis, automation/robotics, electrification, etc. WORRIES include trade wars, hard landing, politics, geopolitics (Iran, N Korea, China, Russia, etc), etc. But the consensus of often wrong (on economy, rates, markets, geopolitics).
Todd AHLSTEN, Parnassus CIO & PRBLX: DE (precision-ag, profitable finance arm), ICE (exchanges, financial technologies & servicing), INTC (value-tech with turnaround potential), MAR (strong EBITDA, ROC, 31 brands), ORCL (interesting AI & cloud computing play), TMO (life sciences tools, growth via M&A)
Scott BLACK, Delphi Management:
Abby COHEN, Columbia U:
Sonal DESAI, Franklin Templeton:
Henry ELLENBOGEN, Durable Capital Partners:
Mario GABELLI, Gabelli Funds:
David GIROUX, T Rowe Price CIO & PRWCX (PRCFX, TCAF):
Rajiv JAIN, GQG Partners: New this year
William PRIEST, Epoch:
John ROGERS, Ariel Investments: New this year
Meryl WITMER, Eagle Capital Partners: GHC (education, student housing, media, manufacturing, healthcare, auto dealerships, other), WTFC (holding company with 15 community-bank subsidiaries in the Midwest (IL, WI))
Pg 6, UP AND DOWN WALL STREET. When the FED finally cuts rates, their effects on stocks may be muted. There aren’t many instances of Fed easing when the core CPI > unemployment rate (only in 1969, 1974, 1980, 1981). The markets may later regret any preemptive Fed rate cuts. The fed fund futures markets are well ahead of the Fed on rate cuts. There is hope that rate cuts will cause money flows into stocks from money-market funds.
With DEGLOBALIZATION taking hold, there are EM beneficiaries of near-shoring (Mexico, Dominican Republic, Costa Rica, etc) and regionalization (India. etc). Weakening DOLLAR will be tailwinds for several EM bonds – ETFs EMLC, EMHC, LEMB; CEFs MSD, TEI.
Pg 8, STREETWISE. AIRLINE stocks (UAL, AAL, DAL) may finally be attractive. 2024 may be a normalizing year. Passenger demand is rising; capacity is also rising. Jet fuel prices are reasonable. Some bulls say that these stocks are for trading, not for B&H. Among the smaller players, JBLU + SAVE merger may not be approved and that may lead to SAVE bankruptcy; specialists may do better, SNCY, CPA.
(EXTRAS from online Friday that didn’t make the weekend paper version)
See Column Topics. It seems some consolidation/rearrangement of Columns is going on.
(More later….)
LINK
Pg 34, TRADER. On the expectations of RATE cuts, the stock market is near its highs. The CPI was a bit stronger, but the wholesale PPI (< CPI) was a bit weaker. The 10-yr Treasury yield fell. But inflation remains high. Big banks started the Q4 EARNINGS SEASON with poor reports; Q4 earnings overall should be better, but earnings expectations for 2024 may be too high.
The defensive HEALTHCARE sector is attractive with a weakening economy. The healthcare industry will benefit from surging numbers for Medicare Advantage plans. ETF is XLV (equal-weight ETF is RSPH).
FedEx (FDX; fwd P/E 12) should have a better year in 2024. It will remain profitable during this rough patch and revenues will rebound in the following years.
www.barrons.com/magazine?mod=BOL_TOPNAV
The CME FedWatch tool is based on current fed fund futures quotes around the FOMC meetings and the assumption of gradual fed fund rate changes (+/- 0.25%). In the list below, more than 50% probability is used to indicate rate hike; “+” is shown after the FOMC date to indicate that rate hike can be at that or a later FOMC.
FOMC 1/31/24+ hold (cycle peak 5.25-5.50%)
FOMC 3/20/24+ cut
FOMC 5/1/24+ cut
FOMC 6/12/24+ cut
FOMC 7/31/24+ cut
(Expectations of cuts at every FOMC meeting in 2024 after January FOMC is just unrealistic) (Probabilities for some rate-ranges aren’t high, so there can be some unexpected moves.)
www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html
FOR THE WEEK (index changes only), DJIA +0.34%, SP500 +1.84%, Nasdaq Comp +3.09%, R2000 -0.01%. DJ Transports -0.25%; DJ Utilities -1.47%. (Rotating spot tech XLK +4.41%) US$ index (spot) FLAT (remains too strong over 100), oil/WTI futures -1.53%, gold futures +0.21%.
52-Week (index changes only), DJIA +9.59%, SP500 +19.62%, Nasdaq Comp +35.14%. (Rotating spot tech XLK +47.32%) (SWITCHED to 52-week until YTD becomes meaningful)
SENTIMENTS
(ALL sentiments remain GOOD)
NYSE cumulative (5-day) A/D LINE rose; ratio of winners:losers 1+:1.
FUND INFLOWS +/OUTFLOWS - (4-weekMA). Stocks -, taxable bonds +, munis -, money-market funds +.
AAII Bull-Bear Spread +24.4% (high). (Thursday-Wednesday)
ybbpersonalfinance.proboards.com/thread/141/aaii-sentiment-survey-weekly?page=12&scrollTo=1285
%Above 50-dMA for NYSE-listed stocks 74.98% (still overbought; topped in mid-December); (StockCharts $NYA50R for NYSE; $SPXA50R for the SP500 in the bottom panel),
stockcharts.com/h-sc/ui?s=%24NYA50R&p=D&b=5&g=0&id=p91704957718 .
Delta MSI 87.3% (overbought); a proprietary index for %Above 75-dMA for selected 1,800 stocks that is published midweek but is updated by Barron’s only on late-Fridays (so, it typically LAGS). The all-cap $NYA50R is typically closer to it than the large-cap $SPXA50R.
(Common Scale: oversold < 30, negative < 50, positive > 50, overbought > 70; note that Delta MSI itself uses all in/out using 50% neutral value, but the same graduated scale is used here for both sources of %Above.)
Pg 37, INTERNATIONAL TRADER. ARGENTINE Prez MILEI is using chainsaw on its economy. He has joined hands with former Prez MACRI to get near-majority in Congress. Argentine bonds trade in 30s; inflation is 100%+. He has eliminated most price controls, is proposing raising taxes and cutting costs. He has offered swaps to international bond holders for local-currency bonds. Labor has called a general strike foe January 24.
Pg 38, OPTIONS. Eli Lilly/LLY may be the next Apple/AAPL; leaps are recommended.
(SP500 VIX 12.70 (low), Nasdaq 100 VXN 16.54 (low), options SKEW 143.81 (high), bond MOVE 106.51 (Yahoo Finance data).
(Low VIX, high SKEW combo is a sign of nervous bulls)
finance.yahoo.com/quotes/%5EVIX,%5EVXN,%5ESKEW,%5EMOVE,%5EXAU/view/v1
Pg 51: A flat week in EUROPE (Greece +2.80%, Netherlands +1.18%, Norway -1.39%) and a good week in ASIA (Japan +4.39% (earthquake stimulus?), S Korea -2.33%).
TREASURY* 3-mo yield 5.45%, 1-yr 4.65%, 2-yr 4.14%, 5-yr 3.84%, 10-yr 3.96%, 30-yr 4.20%;
REAL yields 5-yr 1.62%, 10-yr 1.69%, 30-yr 1.95%;
FRNs Index** 5.305% (Treasury updates it on Tuesdays following the Monday 13-wk T-Bill Auctions).
DOLLAR was FLAT, ^DXY 102.44 (pg 58). GOLD was also FLAT at 2,058 (Handy & Harman spot, Thursday; pg 48); the gold-miners rose. (^XAU was at 120.64, +0.28% for the week)
Top FDIC insured savings deposit rates*** (This feature has been discontinued but see the link below)
US SAVINGS I-Bonds**, NEW rate from November 1, 2023, is 5.27%; the fixed rate is +1.30%, the semiannual inflation is +1.97%.
(NOTE – The Social Security COLA for 2024, based on the Q3 average of CPI-W, is +3.2%)
*Treasury Yield-Curve home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics?data=yield
**Treasury Direct (I-Bonds + T-Bills/Notes/Bonds, FRNs, TIPS)
www.treasurydirect.gov/auctions/announcements-data-results/frn-daily/
www.treasurydirect.gov/marketable-securities/
***For local rates www.depositaccounts.com/banks/rates-map/
(BONUS from Part 2 include Cover Story, Up and Down Wall Street, Streetwise and these won’t be repeated in Part 2)
Pg 16, COVER STORY, “2024 Barron’s ROUNDTABLE”. It’s hard to summarize with attributions, so only the topics discussed are highlighted. A full day of meeting was held on January 8 in the NYC & 11 Panelists’ & some of their recommendations follow (more recommendations will be in Parts 2 & 3 of the Roundtable).
2024 will be a disappointing year for STOCKS; valuations are rich, and leadership is very narrow (fwd P/E of Magnificent 7 is 1.7x that for SP500, for the remaining 493, 0.9x; large-cap fwd P/E 26.1, small-cap value fwd P/E 16.3). The ranks of value managers have thinned. There are values in healthcare, utilities, waste management, energy, some large-cap techs, HY, leveraged loans. Froth in small-caps is gone; 40% of small-caps are unprofitable, and if that is accounted for, R2000 fwd P/E is 26.8 (expensive), not 17. The regional banking crisis hurt R2000 as it has 20% in bank stocks; yet the HTM & AFS portfolio loss issues remain. Bottom-up earnings estimates for SP500 are too high and will come down. The FED will start cutting rates at some point, but real rates will be positive. Higher rates have led to more capital discipline. Money supply is shrinking, M1 -9.6% yoy, M2 -3%; QT is shrinking the Fed balance sheet. FISCAL policy is loose, and this is an election year; budget issues remain unresolved and there may be Government shutdown in January/February. There aren’t many discretionary items in the budget. The US deficit (6% of GDP) and debt (123% of GDP) are high. Many tax cuts will expire in 2025 (unless Congress acts). The US monetary and fiscal policies are working in opposite.
GROWTH will slow. Recession will be avoided but some industries have had rolling recessions (housing, transportation, shipping). The US and China account for 40% of the world GDP and both will be slowing down. GLOBALIZATION is over and that will increase inefficiencies and costs; there will be more tariffs. FOREIGN exposure will remain a drag (Europe, China, EMs); but there are EMs with good prospects (Indonesia, Malaysia, India, Brazil, Mexico). Privatization is a big theme in many EMs; EMs ex-China are doing fine. Euro-zone manufacturing is now near the GFC lows; Europe has overregulation. Multinationals are facing tough competition from local EM companies. The DOLLAR should remain strong. The US reshoring and global energy transitions will be important but expensive. Fossil fuels will remain on the scene for years; the US SPR is at low levels for any energy shocks. Natural gas is very expensive outside of the US. The EMs have low labor costs, but new technologies will substitute some labor. The ESG bubble has burst. Market DRIVERS will be AI (widespread use, productivity boost, long-term negative for labor), cloud computing, semis, automation/robotics, electrification, etc. WORRIES include trade wars, hard landing, politics, geopolitics (Iran, N Korea, China, Russia, etc), etc. But the consensus of often wrong (on economy, rates, markets, geopolitics).
Todd AHLSTEN, Parnassus CIO & PRBLX: DE (precision-ag, profitable finance arm), ICE (exchanges, financial technologies & servicing), INTC (value-tech with turnaround potential), MAR (strong EBITDA, ROC, 31 brands), ORCL (interesting AI & cloud computing play), TMO (life sciences tools, growth via M&A)
Scott BLACK, Delphi Management:
Abby COHEN, Columbia U:
Sonal DESAI, Franklin Templeton:
Henry ELLENBOGEN, Durable Capital Partners:
Mario GABELLI, Gabelli Funds:
David GIROUX, T Rowe Price CIO & PRWCX (PRCFX, TCAF):
Rajiv JAIN, GQG Partners: New this year
William PRIEST, Epoch:
John ROGERS, Ariel Investments: New this year
Meryl WITMER, Eagle Capital Partners: GHC (education, student housing, media, manufacturing, healthcare, auto dealerships, other), WTFC (holding company with 15 community-bank subsidiaries in the Midwest (IL, WI))
Pg 6, UP AND DOWN WALL STREET. When the FED finally cuts rates, their effects on stocks may be muted. There aren’t many instances of Fed easing when the core CPI > unemployment rate (only in 1969, 1974, 1980, 1981). The markets may later regret any preemptive Fed rate cuts. The fed fund futures markets are well ahead of the Fed on rate cuts. There is hope that rate cuts will cause money flows into stocks from money-market funds.
With DEGLOBALIZATION taking hold, there are EM beneficiaries of near-shoring (Mexico, Dominican Republic, Costa Rica, etc) and regionalization (India. etc). Weakening DOLLAR will be tailwinds for several EM bonds – ETFs EMLC, EMHC, LEMB; CEFs MSD, TEI.
Pg 8, STREETWISE. AIRLINE stocks (UAL, AAL, DAL) may finally be attractive. 2024 may be a normalizing year. Passenger demand is rising; capacity is also rising. Jet fuel prices are reasonable. Some bulls say that these stocks are for trading, not for B&H. Among the smaller players, JBLU + SAVE merger may not be approved and that may lead to SAVE bankruptcy; specialists may do better, SNCY, CPA.
(EXTRAS from online Friday that didn’t make the weekend paper version)
See Column Topics. It seems some consolidation/rearrangement of Columns is going on.
(More later….)
LINK
